What a difference a week makes. Last Thursday, the market still remained within the confines of a relatively tight trading range, although some signs of deterioration had begun to emerge. On Friday, though, the mood of traders definitely changed. It seemed as if someone had flipped a switch, and the markets saw no real positive action again until yesterday, with the weekly jump in the VIX (a measure of market volatility) that looked dramatic.
Today, encouraged by good data and Fed talk, the market is now only about 3.5 percent lower for the year, as measured by the S&P 500, and about 6.5 percent lower as measured by the Dow Industrials, having recovered significantly after the steepest slide in years. Read more about A Wild Wild Week 08-27-15
Today, the markets were weak for a third consecutive day. Emerging market turmoil has raised new fears of inadequate global economic growth. China remains on the watch list, and weaker commodities reflect fears that demand will fall still lower.
The latest inflation numbers sit on the same side of the rates equation. The U.S. Bureau of Labor Statistics yesterday reported that the Consumer Price Index (CPI) for All Urban Consumers rose a seasonally adjusted 0.1 percent in July, which is below what economists had expected. The index for all items less food and energy also rose 0.1 percent in July, under 0.2 percent expectations. The shelter index, meanwhile, increased 0.4 percent and contributed heavily to the overall increase, despite rises in the cost of medical care and apparel.
Annualized, the 1.8 percent 12-months increase in the CPI met expectations. It remains below the Fed’s official target.
Read more about Market Action Reflects Contradicting Expectations
Stocks surged on Monday, after a relatively weak week. On Friday, they declined after a payroll report showed that the labor market continues to heal, which increased the probability that the Fed would raise the federal funds rate soon.
Monday’s action was inspired by a recovery in Chinese stocks, as well as new merger/acquisition deals. This time, the action came from none other than Warren Buffett, whose Berkshire Hathaway acquired an industrial company.
Mr. Buffett has also commented on IBM (IBM). In a televised interview, he said that he likes it when the share price of the IT giant goes lower—because this means that IBM could repurchase more of its shares. Read more about Mixed Signals, Mixed Action 08-13-15
Let’s begin this weekly update with something that hasn’t happened yet: the U.S. Department of Labor report on job creation and unemployment. It will be issued tomorrow, but it’s worth addressing today—since at this time in the tightening cycle, every indicator matters, and unemployment is among the most important factors the U.S. Fed reviews.
In short, the Fed will pay attention to the jobs report, and so will the market. But this is not the only economic indicator everyone is watching.
Read more about The Uncertainties of the Fed Timing 08-06-15
Last week was the worst week for the S&P 500 since March and for the Dow Industrials since January; the earnings reports for many companies disappointed and commodity shares slid. Yields for U.S. Treasuries declined, and this, thankfully, was a significant factor that helped some income groups, such as REITs, to outperform. Even the utilities have outperformed in the last month, although the group remains an underperformer year-to-date.
China has rocked the markets too, replacing Greece as a main point of concern. Still, we think that the Fed meeting—and the guidance provided there—is the main event of the week as concerns U.S. stocks. Early in the week, despite the dismal performance of equities in China, the U.S. market declined some, but overall has held its own. Read more about Important News on Many Important Fronts 07-30-15